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Saturday, May 22, 2010

Debt Consolidation Loan Consequences

Consumer debt is a real serious threat the American family. Last year credit card companies earned 150 Billion dollars from the American consumer. Unfortunately $90,000,000,000.00 came from penalties and late fees. It is obvious that the credit card companies and financial institutions have replaced the local loan shark. The result of all this debt is the destruction of the family. The mismanagement of money and in particular credit card debt is the number one cause of divorce and broken families. Domestic abuse and violence is a direct result of too much credit card debt.

Many families are seeking was to manage their debt load. One of the most common sought after solutions is a credit card debt consolidation loan. Many financial institutions and debt counselors recommend a debt consolidation loan. However what many people fail to realize is that there are debt consolidation loan consequences. There are two types of debt consolidation loan on the market today. These included secured and unsecured loans.

A secured loan is tied to some form of equity and in most cases it will be your home. A second mortgage will in many cases lower your interest rate on your debt below what you are paying on your credit cards especially if you have missed a payment. It is not uncommon for a credit card company to raise the interest rate on your account to more than 30 percent after just one missed payment. Basically you have taken the equity from your home to pay off your credit card debt. Studies have shown that unless you cut up all your credit cards and close all your consumer credit accounts you will again end up in financial crisis within 3 years.

Unsecured debt consolidation loan consequences are greater than most secured loans. Interest rates are higher and many have the same loan shark triggers that cause your interest rates and payments to sky rocket if you miss or are late on a payment. Many credit card counseling services will market these loans to their customers. One of the reason they do so is that they sometimes make money one each loan they refer to a financial institution. This is clearly a conflict of interest. If your debt counselor recommends or offers an unsecured consolidation loan you should ask them if the profit from the loan.

Again studies have shown that more than 76 percent of the people who use debt consolidation loans to pay down their credit card and consumer debt end up back in serious debt within 3 years. Unless you change your spending behavior you are guaranteed to end up in financial crisis again. These serious debt consolidation loan consequences will trap you and your family. All of which places you further in debt and increases the damage and stress to the family.

To avoid these debt consolidation loan consequences you will need to work with a credit card counselor that will help you pay down your debt using sound financial principles. That means cutting up all your credit cards and living on a cash basis. If you follow your debt elimination plan you can be debt free in a relatively short time. The average family is able to pay off all its consumer debt in 3 years or less. In addition they will have the ability to invest in the family's future. Being disciplined and following a debt elimination plan will protect you from all of the debt consolidation loan consequences and help you become debt free.